Sunday, May 13, 2007

The world today: Technology and Marketing

Human beings are like cockroaches. We are a vibrant, noisy, smelly, disparate mob, always striving, always discontented and always reaching up higher, higher and yet higher. Despite all civilizing pressures and the standardized curriculum taught in most universities, humans are not and never will be fit into a single mould. There is something deep in our souls that suffocates in conformity and rebels against the status quo. To me, that is the beauty as well as the curse of the human condition. Given a choice, however, I would not have it any other way.

Humans: We come in all shapes, sizes, colours and temperaments

So what does this have to do with Marketing? Well not much, and at the same time, it defines Marketing in its entirety. When Henry Ford famously declared about the Model-T that “Customer’s can have any colour, as long as it’s black.”, it was the start of the mass production era. You can see where he was coming from, for this was the period when new ideas relating to specialization, mass production and the assembly line were just being introduced. The emphasis was on standardization to achieve economies of scale. Yet we are not yet standardized and neither will our desires or preferences ever be.

This is the basic idea behind segmentation where marketers try to slice and dice the market into broad groups who will have similar choices, buy similar things or otherwise behave in similar ways. Then they create different features, different price points and different sizes to provide different products each of which best meet the needs of these different segments. But how do you know who wants what, or who can afford how much, or even which segments are viable.

Increasingly, today it is those companies who know more about their customers and use this information well that are coming out on top in Marketing battles. Such companies are able to segment the market finer and understand meet the needs of such segments much better than their rivals. Traditionally, companies used to rely on fairly innocuous ways such as surveys, direct observations in stores or focus groups to collect information. Today, thanks to the development of IT systems and information processing capabilities, companies have a number of tricks up their sleeve to collect information on their clients. .

Consider loyalty programs or the discount cards of retailers. Whenever a consumer uses these cards for a purchase, their data is being stored and analyzed by the company. Based on such information a retailer might know that less price sensitive consumers shop on Sunday nights while weekday mornings are generally dominated by older and more price sensitive shoppers. Any company and any marketer wants to capture as much consumer surplus as it can and thus, it is but obvious that the prices of same items might be higher on weekends than on weekdays.

However, even on the same day, we might have more price sensitive customers shopping alongside the less sensitive ones. How does Ralph’s ensure that they do not lose out on the purchases of the price sensitive customers while still appropriating as much consumer surplus as they can from the ones who are not bothered by price? Perhaps they could place the higher priced products on the top two shelves while having the same product, in a slightly different size or flavor available for cheaper in the bottom row. In this way, they get both the person who is stuck up on a certain flavor and does not care so much for the price as well as the person who is willing to compromise on flavor for a lower price. Similarly, the same item might be priced differently in a Ralphs located in a low income neighborhood vs. a Ralphs located in a richer, more affluent area in the same area. All such practices have come about due to better gathering and processing of information about customers using Information Technology.

There are also many ways to get consumers themselves to report data to you. Consider the free comparison tables that are available on the Progressive insurance page. Here, consumers can compare quotes from different insurance providers. In return for such comparison shopping consumers turn over valuable information which is used to provide attractive quotes to the right customer, while funneling unwanted types to the competitors.
Similarly, every time a consumer enters a contest for a particular prize, they are not only signaling an interest in the product but also self-reporting a lot of demographic information. This information is gold for the company since it gives them a clearer idea of the particular demographics who are more interested in their products.

Today, however the world is drastically changing and developments in technology are making possible newer ways of collecting very comprehensive information on individuals and groups. More about this in my next entry.

Question: Does it bother you that you that companies might be charging certain consumers a higher price than others for the same products being bought on the very same day in the same city or even at the same store? Do you think its only fair to charge everyone the same for the same products? Well, what if these products were AIDS or other lifesaving drugs? Would you say that such drugs should be provided cheaply to poorer consumers or in poorer countries? I don't think Economics provides an absolute framework for such decisions.